Diageo reported a +10.7% increase in net sales for fiscal year 2023, with premium-plus brands contributing 57% of overall organic net sales growth.
Net sales grew organically +6%, to $21.9 billion, for the Don Julio owner, while organic operating profit grew +7%, thanks to price increases more than offsetting the impact of inflation costs.
Diageo Beer Company USA net sales grew +1%, reflecting strong growth in Guinness, partially offset by a decline in Smirnoff flavored malt beverages (FMBs). Globally, Guinness had the best year since the company has been tracking it: Beer net sales grew +9%, with growth in all regions driven by strong performance from Great Britain, Ireland, North America and Africa. Global brand building is a priority for Guinness, tequila and scotch.
Spirits sales increased +6% organically, earning gains from higher prices and a more premium mix, although volume was flat. Spirit sales were driven by double-digit performances in scotch (+12%) and tequila (+19%).
But in the U.S., net sales of spirits declined -1%. That drop contributed to organic net sales remaining flat in North America, which was offset by growth in Canada and Diageo Beer Company USA. North America makes up 39% of the group’s sales.
Within the spirit-based ready-to-drink (RTD) category, net sales declined -44% primarily due to lapping the launch of Crown Royal RTD in fiscal 2022 and Loyal 9’s underperformance in certain U.S. markets. CEO Debra Crew added that the company lost share in this emerging category, offsetting the category gains in tequila, scotch, Canadian, and U.S. whiskey.
Crew said convenience is important to the group, but it will look beyond malt-based RTDs like Smirnoff Ice and Lone River Ranch Water to make more plays in the premium segment, citing last year’s Bulleit ready-to-serve launch as an example.
“We do have a broad [RTD] portfolio, but we want to play selectively, we want to play where it’s premium, we want to play where it will ultimately help our brands,” she said.
Crew added that the company has “a strong pipeline of innovation to help us do this.”
Tequila was a bright spot in the U.S. where net sales grew +15%, driven in part by Casamigos (+14%), which benefited from the recent launch of its Cristalino expression. Don Julio (+13%) also led the category, primarily driven by aged expressions and the launch of ultra-premium Don Julio Rosado Reposado. Those launches represent a premiumization ladder the group will continue to climb.
“As aged liquid becomes available, we are moving quickly to develop the sustainable and targeted innovation pipeline we had already planned,” said Crew.
Executives during the call added that agave supply is expected to increase over the next few years, driving prices down, but that benefit will be delayed as the group’s portfolio has a higher share of aged tequilas.
Scotch whiskey brand Buchanan’s net sales also grew +10%, primarily driven by the launch of Buchanan’s Pineapple. Single Malts net sales grew +25%, mainly thanks to ultra-premium Lagavulin 16YO and luxury innovation Lagavulin 11YO Charred Oak Cask.
Other spirit categories experienced declines stateside, with some growth boosted by new launches and high end extensions.
Net sales for Crown Royal whisky fell -10%, lapping inventory replenishment in fiscal 2022 when the brand recovered from supply constraints. The company said it plans to support the long‐term growth ambitions of the brand, increasing production capacity up to 50,000 barrels per year, through a $200 million investment in a new carbon‐neutral distillery in Canada.
Vodka net sales declined -7%, primarily due to Cîroc (-32%) and partially offset by growth in Smirnoff (+4%), while Ketel One sales were flat. Cîroc has recently been the topic of a lawsuit filed by Sean “Diddy” Combs that led to a severed partnership with Diageo.
Bulleit whiskey net sales declined (-6%) as did Johnnie Walker (-13%). Rum sales fell (-1%), primarily due to Captain Morgan, which declined -2%. Zacapa grew +13% driven by super-premium and luxury variants.
Other spirits companies have reported a slowdown in the U.S., as sales normalize post-pandemic and consumers adjust to the impact of inflation. In the case of Diageo, elevated demand drove inventory to low levels for several key brands, such as Crown Royal, followed by distributors increasing inventories of imported products in response to the shipping and logistical challenges in fiscal 2022. That resulted in U.S. shipments growth being ahead of depletions.
“Our expectation that U.S. spirits consumption would normalize over time, and as expected, we are seeing it trend back towards historical mid‐single‐digit growth,” Crew said.